Public
expenditure effects
e effect of public expenditure on
production can be examined with reference to its effects on ability &
willingness to work, save & invest and on diversion of resources.
1.
Ability
to work, save and invest :
Socially desirable public expenditure increases community's productive
capacity. Expenditure on education, health, communication, increases people's
productivity at work and therefore their incomes. With rise in income savings
also increase and this in turn has a beneficial effect on investment and
capital formation.
2.
Willingness
to work, save and invest : Public
expenditure, sometimes, brings adverse effects on people's willingness to work
and save. Government expenditure on social security facilities may bring such
unfavourable effects. For e.g. Government spends a considerable portion of its
income towards provision of social security benefits such as unemployment
allowances old age pension, insurance benefits, sickness benefit, medical
benefit, etc. Such benefits reduce the desire to work. In other words they act
as disincentive to work.
3.
Effect
on allocation of resources among different industries & trade : Many a times the government expenditure
proves to be an effective instrument to encourage investment on a particular
industry. For e.g. If government decides to promote exports, it provides
benefits like subsidies, tax benefits to attract investment towards such
industry. Similarly government can also promote a particular region by
providing various incentives for those who make investment in that region.
2. Effects on Distribution
The primary aim of the government is to maximise social benefit through public expenditure. The objective of maximum social welfare can be achieved only when the inequality of income is removed or minimised. Government expenditure is very useful to fulfill this goal. Government collects excess income of the rich through income tax and sales tax on luxuries. The funds thus mobilised are directed towards welfare programmes to promote the standard of poor and weaker section. Thus public expenditure helps to achieve the objective of equal distribution of income.
Expenditure on social security &
subsidies to poor are aimed at increasing their real income & purchasing
power. Public expenditure on education, communication, health has a positive impact
on productivity of the weaker section of society, thereby increasing their
income earning capacity.
3. Effects on Consumption
Public expenditure enables redistribution
of income in favour of poor. It improves the capacity of the poor to consume.
Thus public expenditure promotes consumption and thereby other economic
activities. The government expenditure on welfare programmes like free
education, health care and housing certainly improves the standard of the poor
people. It also promotes their capacity to consume and save.
4. Effects on Economic Stability
Economic instability takes the form of
depression, recession and inflation. Public expenditure is used as a mechanism
to control instability. The modern economist Keynes advocated public expenditure
as a better device to raise effective demand & to get out of depression.
Public expenditure is also useful in controlling inflation & deflation.
Expansion of Public expenditure during deflation & reduction of public
expenditure during inflation control money supply & bring price stability.
5. Effects on Economic Growth
The goals of planning are effectively realised only through government expenditure. The government allocates funds for the growth of various sectors like agriculture, industry, transport, communications, education, energy, health, exports, imports, with a view to achieve impressive growth.
Government expenditure has been very
helpful in maintaining balanced economic growth. Government takes keen interest
to allocate more resources for development of backward regions. Such efforts
reduces regional inequality and promotes balanced economic growth.
Conclusion
Modern economies have all experienced
tremendous growth in public expenditure. So it is absolutely necessary for
governments to formulate rational public expenditure policies in order to
achieve the desired effects on income, distribution, employment and growth.
No comments:
Post a Comment